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Cite as: 2002 SCLR 278, [2001] ScotCS 267

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OUTER HOUSE, COURT OF SESSION

CA154/00

OPINION OF LORD MACFADYEN

in the cause

JOHN BOGIE, trading as OAKBANK SERVICES

Pursuer;

against

THE FORESTRY COMMISSION

Defenders:

________________

Pursuer: J.D. Campbell, Q.C.; Russel & Aitken

Defenders: Ferguson, Q.C.; Tods Murray

23 November 2001

Introduction

[1] In this action the pursuer seeks declarator that he has a valid option to purchase an area of ground extending to 24 hectares or thereby at Windyhill Rig, Ae Forest, Ae, Dumfriesshire, together with a servitude right of access thereto, and that the defenders are bound and obliged by the terms and conditions thereof. In the conclusion, the option is said to exist in terms of a contract constituted by letters between the parties' respective agents dated 20, 21 and 31 January, 18, 22 and 29 February and 7 March, all 2000 and by oral agreement between the parties' agents. Further, in the conclusion the area of ground is identified as being shown and described on a plan attached to an application for planning permission (No. 00/P/30123) made by the pursuer to Dumfries and Galloway Council.

Background

[2] The pursuer is involved in three business, all conducted from the same premises at Mosspark, Annan Road, Dumfries. One of these is a limited company; the second is a partnership; and the third, which the pursuer carries on as a sole trader, is carried on under the name Oakbank Services. The business of Oakbank Services is concerned in waste disposal. In connection with that business the pursuer identified, in 1999, a need to find and acquire the right to operate a landfill waste disposal facility in the vicinity of Dumfries. In that connection he engaged the services of RH Consultancy Services ("RHCS"), a firm whose business included the finding of waste disposal sites for clients. The partner of RHCS with whom the pursuer dealt was Mr Anthony Riall.

[3] On the pursuer's behalf RHCS considered a number of possible sites. They approached Forest Enterprise ("FE"), an executive agency of the defenders, and out of discussion with them there emerged the possibility that a site might be made available in Ae Forest. The name adopted to designate the site in question was Dry Rig. The pursuer wished to pursue the acquisition of the right to use Dry Rig as a landfill waste disposal site. Mr Giles Dearden, the officer of FE primarily concerned in the matter, sought and obtained authority to enter into negotiations with the pursuer. Because of his lack of experience of landfill operations, it was decided that consultants would be engaged to conduct the negotiations on behalf of FE. Johnston Poole & Bloomer ("JP&B"), Land Agents, were engaged for that purpose. The individual from that firm primarily involved was Mr Philip Lee. Thereafter negotiations proceeded between Mr Riall and Mr Lee. Each of the agents reported back to his principal from time to time. Mr Riall reported to the pursuer, and to the Development Director of Oakbank Services, Mr Robert Hyslop. Mr Lee reported to Mr Dearden. Mr Dearden's superiors in FE were also involved from time to time.

The Negotiations

[4] On 29 November 1999 Mr Riall communicated to Mr Lee the pursuer's agreement to bear the fees incurred by FE to JP&B in connection with the negotiations in two instalments capped at specified sums (No. 6/1 of process). With that point settled, the negotiations then proceeded. Meetings took place and correspondence was entered into, the details of which do not all require to be recorded. In a letter dated 10 December 1999 (No. 6/3 of process) Mr Lee wrote to Mr Riall in inter alia the following terms:

"In order to permit Oakbank a period of time within which to conduct the necessary studies and make a planning application and environmental assessment in support of the development, it will be necessary to enter an agreement with my clients which will grant an agreed period of exclusivity to Oakbank. We have agreed that the most appropriate form of agreement is an option agreement with a detailed lease attaching. We have further agreed upon a staged approach such that stage 1 is to attempt to agree principle (sic) heads of terms, successful conclusion of which will lead to conclusion of detailed heads before inviting solicitors to set the agreement in a formal legal context."

[5] After further correspondence in which aspects of the proposed arrangement were discussed (Nos. 6/4 to 6/11 of process), Mr Lee reported to Mr Dearden by letter dated 20 January 2000 (No. 6/12 of process) attaching "a summary of the heads of terms agreed thus far". That letter is the first of the documents founded upon by the pursuer in the conclusion. In summary, the heads of terms provided (1) that the pursuer would take an option for two years extendible for a further year during the dependence of a planning application or planning appeal; (2) that the option fee was to be £2500 (ex VAT) payable immediately the term commenced, with a further option fee of £5000 (ex VAT) on the first anniversary of commencement; (3) that the option was to be to take a lease within three months of the receipt of planning permission; (4) that the lease was to be for fifteen years, extendible thereafter from year to year; (5) that certain royalties were to be paid per tonne of waste deposited on the site, different rates being agreed for inert and active waste; (6) that the minimum annual rent would be £30,000 (i.e. that sum would be paid if the total sum of royalties payable in the year amounted to a lesser sum); and (7) that the royalties and minimum rent would be reviewed annually. There was also reference to the pursuer compensating FE for loss of crop value "on the basis of cost plus RPI. The datum value in 1994 is £1275/ha." A number of other points were recorded as having been agreed, but it is unnecessary to set them out in detail at this stage. It was noted that two points remained to be agreed, namely (i) the import of material for engineering purposes royalty free, and (ii) the use of an adjacent quarry to generate stone. That letter was copied to Mr Riall, and on 21 January 2000 he wrote to Mr Lee (No. 6/13 of process) stating:

"Your letter [dated 20 January 2000] correctly sets out the position we have reached in these negotiations at the present time."

In relation to crop compensation, Mr Riall pointed out that a considerable percentage of the land was self generated timber and did not justify the amount per hectare proposed. He said:

"... We have agreed to finalise the actual figure by discussion with the Forest Manager once the precise area of land required has been determined".

The letter of 21 January is the second of the letters founded on in the conclusion.

[6] On 25 January JP&B rendered their Interim Account No. 1, which bore to be "in connection with provision of basic Heads of Terms", and the pursuer paid that account on 1 February 2000. By e-mail dated 29 January (No. 6/15 of process) Mr Riall asked Mr Dearden to provide a letter of intent. On 31 January, Mr Dearden wrote to Mr Riall (No. 6/17 of process) in the following terms:

"As discussed I confirm Forest Enterprise is prepared to enter into an option/lease or option/sale with Oakbank Services for a landfill site over approximately 24 ha in Ae Forest subject to mutually agreed terms. Agreement on the main heads of terms is now close and we look forward to discussing further detail and legalities over the forthcoming weeks."

Although written by Mr Dearden as an officer of FE rather than by the defenders' agents, that appears to be the third letter founded on in the conclusion. It contains the first written mention of the possibility that the option would be to purchase rather than to take a lease. The evidence was, however, that the possibility of an option to purchase had been raised by Mr Riall at an earlier stage.

[7] At this stage, the Scottish Ministers and the pursuer entered into a Minute of Agreement in terms of which the pursuer was granted an exploration licence in respect of an area of ground in Ae Forest. Although the copy which is produced (No. 6/39 of process) lacks the last few lines of the testing clause, it is matter of agreement (see paragraph 2 of the Joint Minute No. 32 of process) that it was executed by both parties on 4 February 2000. The exploration licence was for a period of twelve months from 28 January 2000 to 31 January 2001. The area of ground to which it related was described as:

"lying near Windyhill Rig, Ae Forest shown delineated in red on the plan annexed and signed as relative hereto".

The area outlined in red on the plan is approximately rectangular in shape, with the longer sides oriented approximately north-west/south-east. The south-east boundary runs along (but does not include in the site) what appears to be an existing road. The delineated area lies to the south east of the feature marked as "Windyhill Rig" and to the west of the feature marked as "Dry Rig". The size of the area covered by the exploration licence is not mentioned in the Minute of Agreement. Mr Hyslop said in evidence that it was 24 hectares.

[8] There then followed further detailed negotiations, dealing mainly with the provision of stone from the adjacent quarry and with the access road. Those negotiations resulted in an e-mailed letter from Mr Lea to Mr Riall dated 18 February 2000 (No. 6/20 of process). Mr Riall responded by e-mail on 22 February (No. 6/22 of process) agreeing most of what Mr Lea had set out, with some qualifications. He added:

"Incidentally, I haven't heard back from FE regarding the question of Sale or Lease?".

Mr Lea's response, again by e-mail, dated 29 February (No. 6/23 of process) accepted some of Mr Riall's qualifications, and made counter-proposals on others. The second and third paragraphs were in the following terms:

"On the question of sale or lease I can confirm that FE is seeking to sell the site with access whilst retaining the current access through the village. Tods Murray [the defenders' solicitors] are aware of the progress of negotiations to date and FE's intention to sell the site and are currently awaiting clients instructions to proceed to prepare documentation to reflect what has been agreed.

For the avoidance of any doubt please provide a separate letter of undertaking committing Oakbank to meet FE's legal and agents fees from the date at which instructions are given to Tods Murray."

Those three e-mailed letters (Nos. 6/20, 22 and 23) are the fourth, fifth and sixth letters founded on in the conclusion.

[9] Mr Riall then sent to Mr Lea an undated e-mail (No. 6/24 of process). It is a matter of agreement between the parties (see paragraph 1 of the Joint Minute No. 32 of process) that it was sent on 7 March 2000. It was in the following terms:

"The terms set out in your letter ... dated 29 February 2000 are acceptable to our Client and we now wish to proceed to legal agreements.

I will get Oakbank to write formally confirming that they will meet the reasonable legal and agents fees of FE in finalising an agreement.

You have already been notified of the name of Oakbank's solicitors and the contact person there.

Once you have received the appropriate letter from Oakbank I would be grateful if you would contact me to ensure that our respective solicitors receive identical information relating to our negotiations to date, in order to avoid abortive legal costs."

That e-mail is the seventh and final component of the correspondence relied upon in the conclusion. In due course the pursuer (in a letter dated 15 March and signed by Mr Hyslop, No. 6/25 of process) provided the promised assurance as to FE's legal and agents' fees.

[10] On 16 March 2000 there was lodged on the pursuer's behalf an application for planning permission (No. 6/35 of process). The description of the proposed development was:

"Use of land and associated engineering operations to form a landfill/landraising facility for disposal of controlled waste, siting of office/mess".

The site area was given as 10.58 ha. The relative plan showing the location of the application site (No. 6/36.4 of process) indicates that the south-eastern boundary is further north than the south-eastern boundary of the area outlined in red on the plan attached to the exploration licence. Although the scale of the plans makes it difficulty to be sure, the application site appears to lie for the most part within the exploration site, although the northern end of the north-east boundary of the application site appears to be outside the exploration site.

[11] No formal "Heads of Terms" were ever produced. On 23 March 2001 Mr Lea wrote to Tods Murray a letter (No. 6/28 of process) in inter alia the following terms:

"As you are aware, I have been acting for Forest Enterprise in negotiations with Oakbank with the aim of agreeing heads of terms for an option and lease agreement for a landfill site within the Forest of Ae. I confirm that both parties now wish to conclude a formal legal agreement reflecting the agreed heads of terms. ...

I also enclose correspondence which describes the agreement to date and would ask that you prepare appropriate documentation remembering that Giles [Dearden] has determined to pursue a sale of the site itself whilst retaining eventual access over which wayleave payments will be made."

On the following day Mr Riall wrote to Whitelaw Edgar & Baldwin (the pursuer's solicitors) a letter (No. 6/29 of process) in inter alia the following terms:

"You will no doubt recall our telephone conversation some weeks ago when I explained that we act for Oakbank Services in relation to their proposed landfill site in the Forest of Ae, known as Dry Rig.

We have now finalised Heads of Terms involving an option and lease/sale agreement with Forest Enterprise, through their agent Philip Lea ...

I am enclosing herewith all relevant correspondence between Philip Lea and myself which adequately defines the agreement to date.

Forest Enterprise is using ... Tods Murray ... who I understand will be producing the initial draft documentation.

I would point out that originally this deal was going to be an option to take a lease. Towards the end of the negotiations Forest Enterprise decided that they wished to transfer ownership of the land. It was agreed that in this case the overall financial terms would be no more onerous to Oakbank than the negotiated terms for a lease. I think that they will propose a sale of the land at a 'peppercorn' linked to the negotiated royalty structure. This could be achieved by having a separate lease/agreement to grant access over the forest road leading to the site."

[12] On 30 March JP&B rendered their Interim Account No. 2 (No. 6/31 of process) to the pursuer "in connection with provision of detailed Heads of Terms". That account was paid by the pursuer on 30 April.

[13] In connection with the planning application a public meeting was held to explain the proposal to interested members of the public. It appears that a measure of opposition to the proposal was voiced at that meeting. There followed a meeting between the parties, and thereafter Mr Dearden wrote to Mr Hyslop a letter dated 17 April (No. 6/30 of process), which was in inter alia the following terms:

"Further to our discussion on Monday I would reiterate our decision to not progress on Option until Oakbank is able to show that public concerns have been addressed.

I would confirm that we would need you to demonstrate, by public meeting or other method, that the large number of concerns as raised at the recent public meeting had been addressed and that there was a reasonable level of acceptance to the landfill site going ahead. We would propose FE would be the judge in this."

A further meeting took place between the parties on 20 April. Mr Riall's minute of that meeting (No. 6/32 of process) indicates that Mr Lofthouse, the Director of FE, indicated that FE had been surprised by the level and strength of feeling in opposition to the proposal, and that "before entering into any legal agreement" they must be satisfied that a large number of the concerns raised at the public meeting had been addressed. The minute further indicates that Mr Hyslop responded by saying that a contract already existed. He indicated that the pursuer had received legal advice to that effect. By letter dated 26 April (No. 6/33 of process) Mr Dearden reiterated that FE's support for the proposed development was conditional on the pursuer obtaining a reasonable measure of acceptance for his proposals within the local community.

The Issues

[14] Before turning to consider the parties' respective submissions, it is convenient to identify what is, and what is not, in issue in the case. It is not disputed that, by 7 March 2000, the parties had agreed that the contract was to be an option to purchase the proposed landfill site, rather than to take a lease of it. It is not disputed that the option was to be for a period of two years extendible for a further year if a planning application or appeal was in dependence, and was to be exercised within three months of receipt of planning permission for use of the site as a landfill facility. Although the date of commencement of the option period was not expressly identified, Mr Ferguson for the defenders accepted that in the absence of express provision on the point it was open to the court to infer that the period was to commence on the conclusion of the contract. There is no dispute as to the price to be paid for the option, namely £2500 (exclusive of VAT) payable on commencement of the option period, plus £5000 (again exclusive of VAT) payable on the first anniversary of commencement.

[15] Moreover, Mr Ferguson made it clear that it was no part of the defenders' case to argue that any contract between the parties was conditional on the pursuer satisfying public concern about the proposed development. Although Mr Dearden suggested in evidence that the need to allay public concern had been mentioned in correspondence between the parties prior to his letter of 17 April (No. 6/30 of process), there is no confirmation of that in the correspondence which has been produced, and I prefer the contrary evidence given by Mr Riall. It seems to me that Mr Dearden may have been recalling the reference to "reasonable concerns of local residents" in section E of No. 7/2 of process, but that was an internal document of the defenders, not communicated to the pursuer. In the result the question is whether or not, when the defenders were taken aback by the force of public opposition to the proposal, they were still free to decline, as they sought to do, to proceed with the option transaction. That depends on whether, by that stage, a binding contract had been concluded.

[16] At one stage of the case it appeared that the defenders would seek to argue that they were free to withdraw from the bargain (a) because no formal "Heads of Terms" had been settled, or (b) because no formal contract had been drawn up by the parties' solicitors. In the event, however, Mr Ferguson disavowed any such argument. He accepted the general principles formulated in Stobo Ltd v Morrisons (Gowns) Ltd 1949 SC 184 per Lord President Cooper at 192 that:

"It is perfectly possible for the parties to an apparent contract to provide that there shall be locus poenitentiae until the terms of their agreement have been reduced to a formal contract; but that the bare fact that the parties to a contemplated agreement stipulate that it shall be embodied in a formal contract does not necessarily import that they are still in the stage of negotiation".

Applying those principles to the circumstances of the present case, he accepted that the fact that the parties contemplated the preparation of Heads of Terms and thereafter the preparation of a formal contract drafted by their solicitors did not operate to deprive the agreement reached between their agents, if there was such an agreement, of the quality of a legally binding contract.

[17] In the result, therefore, the principal issue between the parties came to be whether, by the stage at which the defenders sought to withdraw from the bargain, consensus in idem had been reached on all the essential elements of a contract for an option to purchase heritable property. In particular, the contentious aspects of that issue came to be whether there was sufficient consensus on (a) the subjects of sale, and (b) the price to be paid for those subjects in the event that the option was exercised.

The Pursuer's Submissions

[18] It is convenient to note at the outset that Mr Campbell for the pursuer recognised that the terms of the conclusion would require to be amended. The amendment which he proposed was reformulated in the course of his submissions, and the version which he eventually adopted would result in a conclusion in the following terms (with deletions shown in square brackets, and insertions in bold):

"For declarator that the Pursuer has a valid option, in terms of a contract constituted by letters between the parties' agents dated 20, 21 and 31 January, 18, 22 and 29 February and 7 March, all 2000, and by oral agreement between the parties (sic) authorised agents, to purchase all and whole [that] an area of ground near Windyhill Rig in Ae Forest, Ae, Dumfriesshire extending to 24 hectares or thereby, together with a servitude right of access thereto, including that site extending to 10.58 hectares all as more particularly shown and described on a plan attached to an application for planning permission No. 00/P/30123 made by the Pursuer to Dumfries and Galloway Council (which plan is demonstrative only) and that the Defenders are bound and obliged by the terms and conditions thereof."

Although Mr Campbell did not seek to amend to delete the reference to "oral agreement between the parties authorised agents", I did not understand him to argue that any material part of the bargain was to be found in oral communications rather than in the correspondence identified in the conclusion.

[19] Mr Campbell submitted that in the search for consensus the proper approach was (a) to prefer a construction of the parties' communings which gave them binding effect, provided there was sufficient certainty about the essential features of the bargain, and (b) to seek to give effect to the ascertainable contractual intentions of the parties. In that connection he referred to a number of authorities, beginning with Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, (1932) 43 Lloyd's Rep 359, in which Lord Tomlin said (at 363):

"Commercial documents prepared by business men in connection with dealings in a trade with the workings of which the framers are familiar, often by reason of their inartificial forms confront the lawyer with delicate problems. The governing principles of construction recognised by the law are applicable to every document, and yet none would gainsay that the effect of their application is to some extent governed by the nature of the document. ... [The] problem for a court of construction must always be so to balance matters that without violation of essential principles the dealings of men may as far as possible be treated as effective and that the law may not incur the reproach of being the destroyer of bargains."

In R. & J. Dempster Ltd v Motherwell Bridge and Engineering Co Ltd 1964 SC 308, Lord President Clyde (at 327-328) cited the latter part of that passage with approval, saying:

"[When] a court of law is asked to construe a commercial arrangement reached in terms which are prima facie obligatory, and which are acted on by the parties as obligatory, the court will prefer a construction which gives the contract binding effect. For the essence of commerce is making bargains, and unenforceable arrangements are the exception and not the rule."

In F. & G. Sykes (Wessex) Ltd v Fine Fare Ltd [1967]1 Lloyd's Rep 53 Lord Denning MR said (at 57):

"In a commercial agreement the further the parties have gone on with their contract, the more ready are the Courts to imply any reasonable terms so as to give effect to their intentions. When much has been done, the Courts will do their best not to destroy the bargain. When nothing has been done, it is easier to say there is no agreement between the parties because the essential terms have not been agreed. But when an agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties."

Reference was also made to Miller Homes Ltd v Frame 2001 SLT 459 per Lord Hamilton at paragraphs [12] to [16], and to Scottish Wholefoods Collective Warehouse Ltd v Raye Investments plc 1994 SC 65.

[20] Mr Campbell submitted that it was clear that the parties intended the arrangement entered into between Mr Riall and Mr Lea to be of binding effect and had acted on that basis. Apart from the language in which the agreement was expressed, he relied upon (a) the fact that the pursuer had paid the fees which fell due to JP&B on the provision of detailed Heads of Terms, (b) the fact that after 7 March the pursuer proceeded to lodge the application for planning permission (incurring a fee of £10,120 in doing so - see No. 6/35 of process), and (c) the fact that each party had individually instructed solicitors to give formal effect to the agreement.

[21] Mr Campbell recognised that it was necessary, if it was to be held that there was a concluded bargain, that there should be consensus on all matters that were essential for a contract of the type in question (McBryde, The Law of Contract in Scotland, second edition, paragraph 5-11; May and Butcher Ltd v The King [1934] 2 KB 17). As Viscount Dunedin said in May and Butcher at 21:

"As a matter of the general law of contract all the essentials have to be settled. What are the essentials may vary according to the particular contract under consideration."

Mr Campbell submitted that precise definition of the subjects to which the option related was not necessarily an essential matter in a contract for an option to purchase heritage. There was, he said, nothing intrinsically repugnant about an option to purchase an approximate area of land generally identified but without defined boundaries. He recognised that there was authority to the contrary effect in relation to a contract for the purchase of heritage (Grant v Peter G. Gauld & Co 1985 SC 251), but submitted that the position could be different in relation to an option, particularly in circumstances such as those of the present case.

[22] So far as the price to be paid by the pursuer for the purchase of the site in the event of his exercising the option was concerned, Mr Campbell submitted that it was clear that the agreement was that the terms already agreed in the context of the proposed option to take a lease were carried over into the agreed option to purchase. The main element of the agreed consideration was the income, originally settled in the context of an option to take a lease in terms of royalties at the agreed rates per tonne subject to an annual minimum of £30,000 (see Nos. 6/12 and 6/13 of process). The detail of how those payments would be characterised in an option to purchase did not form part of the essence of the contract. Mr Campbell accepted that there was nothing in the correspondence that specifically supported the pursuer's averment that there was to be a nominal price of £1. Mr Riall referred in his instructions to the pursuer's solicitors to a "peppercorn". In the context of substantial agreed annual payments, the precise amount of any additional nominal price was not an essential element of the bargain. There was sufficient identification of the price in the agreement that the substantive element of the consideration for the purchase was to take the form of annual payments of the amount originally agreed as royalties/minimum rent.

[23] So far as the subjects to which the option related were concerned, Mr Campbell's submission was that in the whole circumstances of the case agreement on the precise boundaries of the site to be acquired by the pursuer in the event of his exercising the option was not essential. It was clear from the whole tenor of the negotiations that the parties' respective agents had a common understanding of the general location and size of the site that was to be the subject of the proposed option. Mr Dearden in evidence accepted that the general location of the site was a matter of agreement. The total area of "approximately 24 ha" was agreed by Mr Dearden in his letter No. 6/17 of process. That was reflected also in the area identified in the plan attached to the exploration licence. It made commercial sense that the parties did not settle on precise boundaries pending the outcome of the exploration. It was, however, clear that it was contemplated that, whatever the precise boundaries might be, the area to be acquired would include the area of 10.58 ha identified in the application for planning permission. FE had seen and approved that application. It was clear from the terms of the correspondence and the parties' respective instructions to their solicitors that they regarded it as enough for the purposes of their commercial bargain that they were agreed that the subjects to be acquired should be an area of approximately 24 ha including within it the 10.58 ha to which the application for planning permission related. They would not have gone to their respective solicitors with instructions to encapsulate their agreement in a formal contract if they had regarded the fact that there was as yet no agreement on the precise boundaries of the site as having the effect that they had not concluded a bargain. It was disingenuous of Mr Dearden to adopt the position which he adopted in evidence, that there was no concluded bargain because there was no agreement on boundaries. The whole course of the negotiations, in which the precise boundaries were never discussed, showed that they were not regarded as an essential aspect of the bargain.

[24] In the result, therefore, Mr Campbell's submissions were (1) that the consideration for the exercise of the option to purchase was identified with sufficient precision by reference to the annual payments originally characterised as royalties/minimum rent, the absence of express agreement on the amount of any nominal "price" being immaterial; and (2) that in the particular circumstances of the case it was clear that the parties did not regard the identification of the precise boundaries of the site as an essential element of the bargain, and that consequently it was sufficient that the area and general location including the planning application site was agreed. On that basis Mr Campbell moved for decree of declarator in the amended terms recorded in paragraph [18] above.

The Defenders' Submissions

[25] Mr Ferguson took as the starting point of his submissions the proposition that for there to be a concluded contract there required to be consensus on all matters essential to a contract of the type in question (Neilson v Stewart 1991 SC (HL) 22, per Lord Jauncey of Tullichettle at 39, quoting from the speech of Viscount Dunedin in May and Butcher at 21). Here the contract which the pursuer sought to set up was an option to purchase heritable property. It was settled that precise identification of the subjects of sale was an essential element of a contract for sale of heritable property (Grant v Gauld). The same held for a contract constituting an option to purchase heritable property. In such a case, consensus on the price to be paid on the exercise of the option was also an essential element. Although there could be contracts in which price was not an essential element (Dempster v Motherwell Bridge), it was important to note that that case was not concerned with a contract of sale (see per Lord President Clyde at 329).

[26] The essential elements of an option to purchase heritable property, Mr Ferguson submitted, were (1) the parties to the transaction, (2) the subjects to which the option related, (3) the prices to be paid (a) in return for the grant of the option and (b) on exercise of the option, and (4) the date at which or period within which the option might be exercised. There was no dispute in the present case about elements (1) and (3)(a), and the absence of specific agreement on element (4) could be remedied by implication. The pursuer had, however, failed to prove that the parties had reached consensus on the subjects or on the price to be paid for them on exercise of the option. The pursuer was therefore not entitled to the declarator sought.

[27] Mr Ferguson accepted the authorities cited by Mr Campbell to the effect that the court should strive to avoid incurring the reproach of being the destroyer of bargains, and should prefer a construction which gave effect to a commercial bargain, particularly where the parties had acted on it as having obligatory effect. He submitted, however, that Mr Campbell was seeking to take too much from the parties' actings. The payment of the second instalment JP&B's fees yielded no inference that the parties regarded the negotiations as by then having reached the stage of a concluded bargain. The fact that the parties had instructed their solicitors was to be taken in the context of Mr Dearden's evidence that he did not consider that there was by then a concluded agreement. There was no good reason to reject his recollection on that point. It therefore could not be said that the fact that the solicitors were instructed showed that the parties considered that a binding contract had been concluded. In any event, whether there was consensus was to be judged objectively. The lodging of the planning application was also a neutral consideration. There was no evidence that it was lodged in reliance on there being a concluded contract.

[28] So far as identification of the subjects was concerned, Mr Ferguson submitted that no distinction should be drawn between a contract for sale of heritage and an option to purchase heritage. In either case, consensus on the subjects to be purchased was an essential element of the bargain. Identification of the area of land and its general location was not enough. The circumstances of the present case were very similar to those of Grant v Gauld. There the contract referred to "the ground at present being quarried by [the defenders] and the surroundings thereto extending to twelve acres". There was thus an identifiable core and an uncertain surrounding area. That was held to be insufficient. Here the conclusion, in the amended version proposed by Mr Campbell, identified a core area (the area shown in the planning application plan) and an undefined surrounding area forming the balance of the total of 24 ha. That should likewise be held to be insufficient. Mr Riall in evidence accepted that the precise boundaries of the area to which the option was to relate could not be identified by reference to the correspondence. The evidence did not justify treating the plan attached to the exploration licence as definitive of the area to which the option related. There was therefore, in the absence of further agreement between the parties, no means of expressing with sufficient clarity what were to be the subjects of the option. The test of whether the agreement sufficiently identified the subjects was that formulated in McArthur v Lawson (1877) 4 R 1134 per Lord President Inglis at 1136, namely whether the contract could be enforced by specific implement. Here an order for specific implement in the terms proposed in the amended conclusion for declarator would not adequately identify the subjects that should, on exercise of the option, be conveyed by the defenders to the pursuer. The parties' agreement therefore failed to express consensus on that essential element.

[29] So far as the price to be paid on exercise of the option was concerned, Mr Ferguson identified three elements that he submitted required to be considered. First, the pursuer contended, in his averments, that there was to be a nominal payment of £1. Secondly, the pursuer contended that there was to be an annual payment, calculated in the same way as was originally agreed as royalties when an option to lease was under discussion, and subject to the annual minimum originally expressed as a minimum rent. Thirdly, Mr Ferguson submitted, an element of the consideration for acquisition of the site was to be the payment of compensation for crop loss. There was no sufficient consensus on any of those elements.

There was in the correspondence no agreement on a nominal payment of £1, or even that there was to be a nominal payment. That was demonstrated by the terms in which Mr Riall referred to a "peppercorn" in his letter to the pursuer's solicitors (No. 6/29 of process) - "I think that they will propose ...". Mr Riall said in evidence that £1 had been discussed but not agreed. Mr Dearden said that Mr Riall had proposed a nominal payment, but that no response had been made on that point.
Agreement that there should, in the context of an option to purchase, be annual payments equivalent to the royalties/minimum rent agreed in the context of an option to take a lease did not constitute adequate consensus on that element of the price. The difficulty was that the annual payments negotiated in the context of an option to take a lease for 15 years would be payable for the duration of the lease (whether it terminated at the end of the period of 15 years or was extended from year to year thereafter), whereas in the context of an option to purchase there was no definition of the period for which the agreed annual payments would continue. There was no evidence that the parties had addressed the question of how long, in the context of a sale in pursuance of the option, such annual payments would continue.
There was no agreement on a mechanism for determining the amount of crop compensation. On that subject No. 6/13 of process expressed no more than an agreement to agree. What was set out in that letter could not be regarded as a mechanism for determining the amount of compensation, since in essence it depended on future agreement between the parties.

[30] For those reasons Mr Ferguson submitted that the pursuer had failed to demonstrate that the parties had reached consensus on the subjects to which the option was to apply or on the price to be paid in the event of exercise of the option. Those were both essential elements of an option to purchase heritable property. The pursuer was therefore not entitled to the declarator sought. The defenders should be assoilzied.

Discussion

[31] The pursuer seeks declarator that he has a valid option to purchase an area of ground from the defenders. It is in my view clear, and it was not disputed before me, that in order to be entitled to such a declarator the pursuer must prove that the parties reached consensus in idem on all matters that are essential (May and Butcher, per Viscount Dunedin at 21; Neilson v Stewart, per Lord Jauncey of Tullichettle at 39). It is also clear that:

"What are the essentials may vary according to the particular contract under consideration".

(May and Butcher, loc. cit.). Moreover,

"The fact that in the usual case a particular term will be considered essential to the existence of a concluded agreement does not prevent parties from contracting in a particular case that it shall not be essential"

(Neilson v Stewart, loc. cit.). It therefore appears to me that the proper approach is to consider first the nature of the contract that the pursuer seeks to set up by declarator, then to consider what elements are ordinarily regarded as essential to the formation of a contract of that nature, then thirdly to consider whether the evidence properly yields the inference that the parties had agreed that there would be a binding contract despite the absence of consensus on a matter normally regarded as essential.

[32] There is no dispute that ultimately the pursuer and FE, through their respective agents, were negotiating the terms of an option to purchase a site at Dry Rig for use as a landfill facility. The contract contended for is therefore of the nature of an option to purchase heritage.

[33] There is in my view clear authority binding on me that the essentials of a contract for the sale and purchase of heritage ordinarily include the identification of the subjects of sale (Grant v Gauld). Such identification may be achieved in a number of ways. It may be achieved by precise definition in the contract of the boundaries of the subjects, whether by description or by reference to a plan. Or it may be achieved by description of the subjects in the contract by name or otherwise in some way that permits their precise identity to be established by evidence (see, for example, the old cases of sale of subjects by general name, Macdonald v Newall (1898) 1 F 68 and Houldsworth v Gordon Cumming 1910 SC (HL) 49, and more recently Merrick Homes Ltd v Duff 1996 SC 497). Description of the subjects in the contract by reference to general area and location will not, however, ordinarily be sufficient, even where part of the subjects can be precisely identified, if there is no means of establishing the identity of the remainder (Grant v Gauld).

[34] I am unable to identify any good ground for treating a contract for an option to purchase heritage as being in this respect any different from a contract for outright sale of heritage. An option to purchase is a contract by which provision is made for the possible future sale and purchase of the subjects. A right is conferred on the holder of the option to purchase the subjects on terms settled at the time of the granting of the option if, within the period for which the option endures, he chooses to do so and signifies his election in the manner agreed upon. It seems to me to be clear that in the ordinary way agreement on the subjects to which the option is to apply is an essential element of the option contract, in just the same way and for just the same reasons as agreement on the subjects of sale is an essential element of a contract of sale. I am therefore unable to accept that Grant v Gauld is distinguishable in the present case on the mere ground that it deals with a sale, not an option to purchase.

[35] It therefore seems to me that the question comes to be whether it is possible to find in the circumstances of the present case ground for holding that, although the identity of the subjects is ordinarily an essential element of an option to purchase heritage, the parties have agreed that that essential element of agreement should be dispensed with, and that there should be a binding and enforceable contract despite their failure to agree on the precise identity of the subjects to which the option is to apply. Have the parties in effect contracted that the precise identity of the subjects is inessential? They have not done so expressly, but that is not in my view necessarily determinative of the issue.

[36] There is in my view some force in the pursuer's contention that there are certain elements in the circumstances of the case that tend to support the inference that the parties did not regard the precise boundaries of the site as an essential element of the bargain. It is clear, it seems to me, that the parties had from the outset a common understanding of the approximate identity of the subjects about which they were negotiating. No time was spent in the negotiations in discussing in any detail what the precise boundaries of the site would be. It is, in my view, clear that the parties were agreed that the site would extend to approximately 24 ha. Although Mr Campbell accepted, as I understood him, that he could not rely on the plan attached to the Minute of Agreement granting the exploration licence as definitive of the option subjects, in practical terms it seem to me that the fact that that agreement was entered into is evidence that the parties were in broad agreement about the site. Moreover, although the planning application was not made until after the date on which, according to the pursuer's contention, the option agreement was concluded, it nevertheless seems to me that the fact that FE had seen the application and may, in my view, be taken to have acquiesced in its terms is further evidence that the parties were agreed that the application site would form part of the 24 ha which would constitute the option site. In this context I place no great weight on the fact that the pursuer was invoiced for and paid the second instalment of JP&B's fees. The fact that each party proceeded to instruct solicitors in connection with the conclusion of a formal contract expressing the agreement that had been reached seems to me at least to be consistent with a common view that the precise boundaries of the site were not an essential feature of the bargain. I did not find Mr Dearden's evidence on this aspect of the matter persuasive. It seemed to me that FE took fright when they discovered at the public meeting that local public opinion was hostile to the proposed development. The point that the identity of the subjects was essential to the option contract came in advice subsequently tendered by FE's solicitors on 19 April 2000 (No. 7/1 of process, page 31), and I am not satisfied that that point had occurred to Mr Dearden or Mr Lea before that advice was received. I accept the evidence that the agreement was that the precise details of the boundaries would be settled in light of the exploration carried out under the exploration licence. Subject to that the parties were agreed as to the broad location and approximate area of the option site, and in my view were under the impression that it did not matter that they had left the precise boundaries unidentified. The question that requires to be determined is whether in those circumstances it would be appropriate to hold that the parties had gone so far as to agree that the precise boundaries were inessential to the contract between them, and that there should be a binding option without that matter having been settled.

[37] It is, in my view, no mere formality that the identity of the subjects of sale is ordinarily an essential matter on which there must be consensus if there is to be a binding sale or a binding option to purchase. While I do not entirely rule out the possibility of a binding bargain in which the precise identity of the subjects of sale is neither settled nor made subject to a procedure for settlement independent of the future agreement of the parties, it is, in my view very difficult to envisage how a lack of agreement on what is to be sold can be reconciled with a binding option to purchase. If the option is to be enforced, how can that be done if the identity of the subjects has not been settled? Although the test set in McArthur v Lawson seems to me, with respect, simply to reformulate the question rather than provide an answer to it, it seems to me that an option to purchase undefined heritable subjects will in virtually every case fail that test. One possibility that occurs to me is that there might be a binding option to buy a specified area of land within an identified larger area, without definition of the boundaries of the option subjects, provided the proper inference from the parties' communings was that they were agreed that the definition of the boundaries was to be at the discretion of the seller. That might in particular be a possibility in a case (such as the present or such as Grant v Gauld) where there was a properly defined core part of the subjects (here the planning application site, in Grant v Gauld the quarry occupied by the defenders) surrounded by a further indeterminate part (here the balance of the agreed 24 ha, in Grant v Gauld the surrounding twelve acres). In effect the party obtaining the option would, in such a case, be agreeing to take the defined core subjects plus the balance of the agreed total area made up as the seller chose. I have considered whether it would be right to hold in the present case that that was what the pursuer and FE intended. I have come to the conclusion that it would not. It seems to me that the pursuer, through Mr Riall, was content to leave the identification of the precise boundaries to be settled in the future, after the exploration had been completed, but that there is no sufficient basis in the evidence for inferring that the pursuer was willing to leave it entirely to the discretion of FE to decide what to add to the planning application site to make up the total of approximately 24 ha. No doubt it might be possible to hold that it was an implied term of the bargain that FE would act reasonably in determining the boundaries of the 24 ha site, and by that means to exclude a commercially bizarre determination of the boundaries. Nevertheless, on the evidence led I do not feel able to hold it proved that the parties left the boundaries indeterminate on the basis that their future determination was not to require further agreement, but was to be at the discretion of FE.

[38] Although I accept the need to prefer a construction of the parties' communings that will treat them as effective to constitute a binding contract, if such a construction is available (Hillas v Arcos, Dempster v Motherwell Bridge), I am not persuaded that it would be right to construe the correspondence founded on as an agreement that the identity of the option subjects was not an essential element of the bargain. In particular, I do not consider that there was evidence which would justify the conclusion that the pursuer was prepared to leave the determination of the boundaries to the discretion of FE. I am therefore of opinion that the case falls within the scope of the ordinary rule that the identity of the subjects is one of the essentials of an option to purchase heritage. Although there was agreement on the general location of the subjects, their approximate area and indeed the boundaries of a core part of them, there was no agreement on their precise over all boundaries. Nor was there agreement on a machinery for determining their boundaries without reference to future agreement between the parties. I am therefore of opinion that on that account there was no sufficient consensus in idem to constitute a binding contract.

[39] I did not understand Mr Campbell to dispute that the price to be paid for the exercise of the option was an essential element of the option contract. His submission was that there was consensus on that matter. In my opinion there was, on the contrary, failure to reach consensus on that essential element of the option contract. On Mr Ferguson's analysis, there were three elements in the pursuer's contentions about price, and a lack of consensus on each of those three elements. In my view, Mr Ferguson was right in his submissions on only one of the three elements, but the lack of consensus on that element is in my opinion fatal to the pursuer's contention that there was a binding option.

[40] In commercial terms, the major element of the consideration for the sale of the option subjects was to be the annual payment calculated by reference to the amount of waste deposited on the site, subject to the annual minimum figure of £30,000. I did not understand it to be disputed that the parties were agreed that those annual payments, originally formulated, in the context of the proposed option to take a lease, in terms of royalties and minimum rent, were to be payable in some guise or another as the consideration for the exercise of the option to purchase. I regard it as of no moment that no attempt was made to express the nature of those payments in language more appropriate to sale and purchase. There is, however, in my opinion a much more substantial problem, which the parties in their negotiations neither addressed nor resolved. Under the proposed option to take a lease, the annual payments would have fallen due for the fifteen year term of the lease, and would have continued thereafter, if the lease was extended from year to year, so long as the lease continued, and would have come to an end on its termination. Under a sale, however, there was nothing in the agreement to define the circumstances in which or the period for which the annual payment would continue to be payable or the circumstances in which it would cease to be payable. The failure to address that problem in my opinion leaves the major element of the consideration indeterminate. That would, in my opinion, be sufficient by itself to lead to the conclusion that there had been a failure to agree upon an essential element of the option contract.

[41] In the context of the main consideration for the exercise of the option taking the form of annual payments, I would have been inclined to hold that a failure to agree on a nominal price payable at the time of exercise of the option did not touch upon the essentials of the contract.

[42] The other matter addressed by Mr Ferguson, namely the crop compensation payments, requires more detailed consideration. Mr Campbell at one stage sought to argue that what was recorded in No. 6/13 of process amounted to agreement of machinery for future determination of the amount of crop compensation, but latterly he accepted that the formula depended on future agreement between representatives of the parties. His final position was that the matter of crop compensation was not part of the price for the acquisition of the subjects, and was not an essential element of the option contract. The fact that that matter was left to future agreement between the parties therefore did not prevent the conclusion of a binding option agreement. Although there is a sense in which the crop compensation provision can be seen as part of the consideration payable for exercise of the option, I would have been inclined to agree with Mr Campbell that it was not of the essence of the option agreement, and therefore did not stand in the way of there being held to be a concluded bargain. In the event, however, the point does not arise.

Result

[43] For the reasons which I have discussed, I am of opinion that the pursuer has failed to prove that the parties reached consensus in idem on the essential elements of a contract for an option to purchase heritable property. In particular, there was failure to reach consensus (a) on a sufficiently precise description of the subjects to which the option was to relate, and (b) on the consideration to be paid for exercise of the option.

[44] I shall accordingly sustain the defenders' second and third pleas-in-law, repel the pursuer's first plea-in-law and grant decree of absolvitor in favour of the defenders. In the circumstances the issue raised by the pursuer's second plea-in-law does not arise for consideration. I shall reserve the question of expenses.